A former member of the Sewerage & Water Board of New Orleans and the ex-president
of the company that once operated two city sewage-treatment plants have been found guilty
on federal bribery-related charges, stemming from the company's attempt to land a
five-year extension of its multimillion-dollar contract.

A jury in Houston convicted Michael Stump of using money from Professional Services
Group, Inc. to buy the support of water board member and fellow defendant Katherine
Maraldo, who was chairwoman of a committee with oversight of the contract. The defense did
not dispute that money changed hands, but argued that the payments amounted to a loan
between friends, not an attempt to corrupt a public official.

But the jury came close to clearing another high-profile defendant, former state
representative and city attorney Sal Anzelmo, who was PSG's local lawyer when the scheme
unfolded in the mid-1990s. The jury acquitted Anzelmo on seven charges, but remained
undecided on a single conspiracy charge. Anzelmo's fate is in the hands of Texas Southern
District Court Judge Kenneth Hoyt, who may void the charge at the request of Anzelmo's
attorneys. If Hoyt refuses, the government can try Anzelmo again, although several legal
observers said Saturday that that's unlikely to happen

The fourth defendant, former PSG Vice President William Gottenstrater, was cleared on
all eight counts.

Tough decision

The verdict came down close to midnight Friday, after the jurors had sent out three
separate notes declaring themselves deadlocked. Each time, Hoyt sent the jury back to try
again.

Stump and Maraldo, whom prosecutor James Cooper likened to "a double agent"
for PSG, were both found guilty on one count of conspiracy and three counts of mail fraud,
and acquitted on three counts of interstate travel in aid of racketeering and one count of
wire fraud. Each count carries a penalty of up to five years in prison and $250,000 in
fines, although first-time offenders rarely receive the maximum sentence.

The additional two counts against all four in the indictment, one for mail fraud and
another for interstate travel in aid of racketeering, were dismissed.

Sentencing is scheduled for Sept. 19. In the meantime, Maraldo and Stump remain free on
$20,000 bond. Both defendants will ask Hoyt to set the verdict aside, Maraldo's attorney
Martin Regan said. He also said the defendants plan to appeal if the judge denies the
request.

The verdict comes at a particularly sensitive time for the water board, which is
considering whether to enter a much larger privatization contract to operate the city's
water and sewer systems for up to 20 years, and for one of the bidders, USFilter Operating
Systems, which is affiliated with PSG and operates the treatment plant contract at the
center of the criminal case.

USFilter, which was not accused of wrongdoing, was acquired by Vivendi, parent company
to PSG and its holding company Aqua Alliance, in 1999, and started running the New Orleans
plants as part of the contract.

Changing the rules

Last year, Aqua Alliance pleaded guilty in a related case, paid a $3 million fine and
agreed to cooperate with the prosecution. Floyd Hill, a former PSG employee who admitted
to falsifying internal documents to obscure the money trail, also pleaded guilty and was a
key government witness.

The water board renewed the contract in question one year at a time, not as a five-year
lump as PSG wanted, and the contract remains in effect pending the board's decision on
systemwide privatization.

Compared to the high six-figure deal under consideration, the original sewer-treatment
plant contract, which has totaled $92 million in 10 years, seems relatively unimportant.
At the time, however, it was among the most lucrative prizes in the emerging field of
big-city public works privatization.

PSG landed the five-year deal in 1992, with the possibility of five one-year renewals.
As the initial term drew to a close, the prosecution argued, PSG sought to change the
rules, and enlisted Maraldo's help to do so.

Starting in 1995, PSG paid nearly $72,000 to Maraldo's partner in a pricey real estate
project they were having trouble selling, and disguised some payments as employee travel
reimbursements, according to the indictment. The company also tried to find a buyer for
the property at an inflated price, paid Maraldo's legal bills in a personal lawsuit
against the board, and paid Anzelmo to provide legal help in Maraldo's attempt to unload
the property in the Oak Harbor development near Slidell, the government charged.

In exchange, Maraldo used her position as chairwoman of the board's sewer and water
committee to push for a five year extension, the prosecution said. The proposal had the
support of the board's staff and passed Maraldo's committee, but never gained the support
of the full board.

Low-key trial

Maraldo did not take the stand, but Stump testified that he authorized the monthly
transfers -- not a gift, but a loan at 10 percent interest -- because Maraldo was a
personal friend. While he conceded that the arrangement probably violated Louisiana's
ethics law, he said he had no motive to commit bribery to get the contract renewed because
he believed PSG's qualifications and track record spoke for themselves.

Stump also said that Anzelmo had advised him against helping Maraldo, and did not know
that he had done so, courtroom observers said.

In 1996, Maraldo reimbursed PSG $78,482. Prosecutors argued that she made the payment
because she knew the scheme had been discovered by PSG's internal investigators.

The four-week trial was relatively low-key for a public corruption case. No past or
present water board members testified, and the only public official to take the stand was
state Rep. Peppi Bruneau. Bruneau, an attorney in private practice, represented Maraldo in
1993 when she successfully sued the board after being removed in a political dispute. His
$9,092 bill was paid by a PSG consultant and described as "legal support for
Louisiana marketing" in books.

Other than that, the prosecution spent much of its 10 days outlining a complicated
paper trail. The defense lasted a day and a half, with only three witnesses testifying:
Stump, a friend of Maraldo's and a real estate agent.